Monday, June 13, 2011
New Winds in Economic Debate
The economic weather is changing. Paul Krugman, The Economist's Buttonwood, Robert Kuttner (Debtor's Prison) and others are starting to remember the 1920 situation and suggest that some debts should not be paid back. Post WWI bankers created insoluble depressions by their insistence in paying national debts, including Germany's war reparations. Some national debts were repudiated, such as Tzarist Russia's bonds, others were paid. Andre Kostolany made his millions speculating in national debt, he describes how he got inside information that the weak Danish government had decided to pay its debt, and bought up cheap those instruments and was paid in full.
Krugman is saying that the world is in the hands of a small rentier class, that 10% of the population is creditor (rentier) and the 90% is debtor and has to live selling its working power. The current government is decidedly favouring the creditor class by avoiding inflation and punishing the working class. Apparently there is little middle class in America, what they call middle class are people who has no properties except their homes and live from salaries. America is a plutocracy in the most extreme sense.
Not paying debts is anatema for creditors, yet freeing the debtors from the paralyzing burden of debt may allow them to increase production. Argentina paid 30 cents on the dollar and resumed its growth. The ideas being debated today is to renegotiate Greece's unpayable debt and pay say 30 cents on the dollar and start anew. Greek bonds are paying 16% which are unsustainable. If Greece, then Spain, Portugal, Italy, Great Britain. And the largest debtor of all, America.
Apparently the solution to renegate debts through inflation is disliked by all. There are no signs that hyperinflation is being considered. I imagined that it was the only option, yet it is not happening. At world level, the Chinese are the largest creditors. Strangely, they are silent.